JENKON INTERNATIONAL INC
10-KT, 2000-03-30
COMPUTER PROGRAMMING SERVICES
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                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KT

/ /   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934


/X/   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

For the transition period from January 1, 1999 to June 30, 1999

Commission file number 000-24637

                           JENKON INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

                Delaware                                91-1890338
    State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                   Identification No.)

   7600 N.E. Street, Suite 350, Vancouver, Washington       98662
    (Address of principal executive offices)            (Zip Code)

Issuer's telephone number, including area code:     360-256-4400

Securities registered under Section 12(b) of the Exchange Act:  Common Stock,
$.001 par value

Securities registered under Section 12(g) of the Exchange Act: None

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                            Yes   /X/  No / /

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /

         Multimedia K.I.D. - Intelligence in Education, Ltd.'s revenues for the
six months ended June 30, 1999 were $747,743 and for the year ended December 31,
1998 were $1,499,082. The foregoing does not include the revenues of Jenkon.

         The aggregate market value as at March 17, 2000 of the Common Stock of
the issuer, its only class of voting stock, held by non-affiliates was
approximately $20,421,000 calculated on the basis of the closing price of such
stock on the NASDAQ Small Cap Stock Market on that date. Such market value
excludes shares owned by all executive officers and directors (but includes
shares owned by their spouses, if applicable); this should not be construed as
indicating that all such persons are affiliates.

         The number of shares outstanding of the issuer's Common Stock as at
March 17, 2000 was 5,502,935.

Transitional Small Business Disclosure Format (check one):  Yes / /   No  /X/

<PAGE>

                                  INTRODUCTION

         On December 16, 1999, Multimedia K.I.D. - Intelligence in Education
Ltd., an Israeli Corporation ("Multimedia" or the "Company") and the holders of
all Multimedia's stock entered into a Stock Exchange Agreement and Plan of
Reorganization (the "Agreement" or "Transaction") and became a wholly-owned
subsidiary of, Jenkon International, Inc. ("Jenkon").

         All periodic reports heretofore filed by the Company with the
Securities and Exchange Commission have reflected only the operations and
financial statements of Multimedia on a stand-alone basis.

         For financial accounting purposes only, the Transaction is treated
as a "reverse acquisition" of Jenkon by Multimedia utilizing the "purchase"
method of accounting. As a result, all financial statements of the Company
included in this and future periodic reports filed by the Company but
covering periods prior to December 16, 1999 will reflect only the results of
operations, financial position and cash flows of Multimedia on a stand-alone
basis. All consolidated financial statements of the Company for periods
commencing December 16, 1999 will, in addition, include the results of
operations, financial position and cash flows of Jenkon from and after that
date.

         Subsequent to the Transaction, the Company elected to adopt Jenkon's
June 30 fiscal year rather than Multimedia's December 31 fiscal year.
Accordingly, this Transition Report on Form 10-KSB is being filed pursuant to
Rule 13a-10(b) of the Securities Exchange Act of 1934 to file audited financial
statements of Multimedia as of December 31, 1998 and June 30, 1999 and for the
years ended December 31, 1997, December 31, 1998 and six months ended June 30,
1999.

         On March 15, 2000, Jenkon entered into a Stock Purchase Agreement
and a Management Services Agreement (collectively the "Agreements") with JIA,
Inc., a Company partly owned by current management of Summit V (a wholly
owned subsideary of Jenkon), for the sale of all the outstanding stock of
Summit V, Inc. Summit V, Inc. is Jenkon's historical direct sales software
operating division. The sale is subject to shareholder approval and other
customary conditions to closing.





                                       2

<PAGE>




                                     PART 1


ITEM 1.           BUSINESS

GENERAL

         Founded and incorporated in January 1996, Multimedia develops
educational systems for kindergartens, schools, special education, management
training and enrichment centers. The Company's systems combine interactive
software, playful didactic aides and unique electronic interfaces. Such
products have been marketed and installed in over 30 countries around the
world. Multimedia's products provide educational, three dimensional
computerized environments that combine physical components such as wooden
blocks, task cards, worksheets and books with the latest computer based
technologies.

         Pursuant to an agreement dated January 21, 1996, the Company was
granted a right of first refusal to purchase all the rights to an interactive
learning system named "Multimedia K.I.D." and a cognitive application named
"Action K.I.D." from P.M.D. Technological and Educational Systems Ltd. ("PMD").
At the time the agreement was consummated, PMD was owned and operated by an
executive officer and founder of Multimedia. Some of PMD's employees were
transferred to the Company during 1996. The majority of PMD's employees were
transferred in January 1998.

         In 1997, Multimedia was granted a Computer Software Award from the
office of the Prime Minister of Israel in the category of "Special Innovation
and Invention in Education."


BUSINESS STRATEGY

         Although there can be no assurance that the Company will be able to
achieve its goals, the Company's business objective is to expand market
penetration and to become a leader in the development of educational systems
and related products. In order to achieve this objective, the Company's
strategy includes the following elements:

         EXPAND GEOGRAPHIC MARKET PENETRATION. The Company believes that
         international markets provide significant opportunity for the Company
         to increase sales of its products. Given the increasing acknowledgement
         of the need for change in educational systems in many countries
         throughout the world and especially in the United States, Germany,
         France, the United Kingdom, Scandinavia, Italy and Spain, the Company
         intends to expand its geographic presence by expanding the focus of its
         sales and marketing efforts to these international markets as well as
         the Israeli market.

         INCREASE MARKET PENETRATION OF CORE PRODUCTS. The Company believes that
         its current base of clients represents only a small portion of the
         total number of education institutions and learning centers that are
         potential users of the Company's core products. The Company will
         attempt to increase the market penetration through more aggressive
         marketing and promotional effort and by continuing to forge
         partnerships with corporate market leaders and industry spokespeople.

         LEVERAGE CURRENT AND FUTURE CUSTOMER BASE. The Company believes that
         as its customer base expands, the use of the Company's educational
         systems will encourage other educators to utilize the system and thus
         open new opportunities to provide training and additional services.
         Additionally, the pedagogical methodology inherent in their products
         promotes substantial change in the educational structure of the
         institution thereby providing further opportunities to sell additional
         products.

         The success of the Company's business strategy will depend in part
upon the Company's access to capital resources to fund any expansion as well
as other factors such as market demand for its products, many of which are
outside of the Company's control. See "Additional Considerations and Risk
Factors" below.


CORE PRODUCTS.

         All the products developed by the Company are designed to provide a
comprehensive educational environment that promotes the learning development
process. Although all the products have been developed in English, the
various systems have been localized into more than twenty different languages.


                                       3
<PAGE>

         ACTION K.I.D. Action K.I.D. is an interactive multi-dimensional,
multi-activity education center. The computerized center integrates an auditory
communications system, a video photography station, and vibrant visual
instructional material into a programmed wooden playground-like structure,
complete with a labyrinth, balance beam, bridge, ramps and ladders to create an
interactive learning wonderland for children. Built into the structure is a
touch system comprised of step-on keypads, a variety of hand buttons, touch
screens, and other elements that receive, convey and record real-time
information relevant to the task at hand.

         MY K.I.D. The My K.I.D. software system interfaces with an interactive
activity unit, playful didactic items and colorful activity mats. The system
incorporates multimedia software and is designed for individual or group work,
depending on pedagogical needs. My K.I.D. focuses on developing language arts,
and does so by integrating vocabulary from various fields and emphasizing the
different aspects of language including grammar, expressive writing, reading
comprehension and listening skills.

         K.I.DUCATION. The K.I.Ducation system is a comprehensive
computer-assisted learning system. The system, with its built-in electronic
panel, features soft-touch keys and icons, and the ability to function as a
keyboard and mouse. The subjects addressed by the K.I.Ducation system are
derived from a broad range of fields including nature, hygiene, electricity,
arithmetic, biology and other fields commonly covered in educational
settings. The system comes with a learning kit that includes hundreds of
colorful manipulatives including template mats, task cards, picture cards,
wood blocks, soft sponge numbers, dice and the all-inclusive Creative
Workshop.

         EDULINE. The EDULine family of systems combine an activity table,
interactive software, 3D objects, didactic tools and electronic interfaces. The
systems are designed to provide flexibility to enable adaptation to all learning
populations. In the EDULine family, such items as a Tactile Table and
Illuminated Keyboard address the special needs framework.

The Company is also developing a new series of Home Products, in addition to
the Company's current series. These products, called Spunky's Fun Keys,
contain unique three-dimensional aides that are to be used in conjunction
with the software.

TECHNOLOGY

         Similar to many other software packages, Multimedia's products utilize
various technologies including operating systems provided by various suppliers.
All the Company's products currently operate on the DOS operating system and
Microsoft Windows 95-98 and NT.

         LANGUAGE. The programs developed by the Company which work on the DOS
operating system use PASCAL. The programs that work on Windows operating systems
use Lingo (Director) and Visual C++.

         SYSTEM REQUIREMENTS. The programs developed by the Company require a PC
with a 486 or faster processor and a sound card.


CUSTOMERS

         The Company's products (including products sold or licensed by PMD),
have been installed in over 30 countries around the world. The Company's
strategy is to locate companies in various countries which will serve to
market the Company's products. Typical customers include schools, learning
centers, government offices and management training centers.


                                       4
<PAGE>

         The following table sets forth the approximate geographic distribution
of Multimedia's sales for the six months ended June 30, 1999:

<TABLE>
<CAPTION>

                                           Revenues              % of Total
                                          ---------              ----------
<S>                                        <C>                     <C>
Romania                                    $331,240                44.3%
United States                               251,286                33.6
Israel                                      148,000                19.8
Other                                        17,217                 2.3
                                           --------               ------
Total                                      $747,743               100.0%
                                           ========               ======
</TABLE>

         The Company's sales have historically been dependent upon a few major
customers. The following table sets forth the approximate revenues from major
single customers of Multimedia for the six months ended June 30, 1999 as well as
the percentage of total revenues for the period:

<TABLE>
<CAPTION>

                                           Revenues              % of Total
                                          ---------              ----------
<S>                                        <C>                     <C>
Customer A                                 $331,240                44.3%
Customer B                                  251,286                33.6
Customer C                                  148,000                19.8
                                           --------               ------
Total                                      $730,526                97.7%
                                           ========               ======
</TABLE>



SALES AND MARKETING

         SALES. The Company sells its products to customers through its
direct sales force inside Israel. The Company has agreements with several
companies to market and sell certain products in countries outside Israel. In
addition, Company employees attend several technological education shows and
participate in seminars organized by academic bodies.

         Substantially all of the Company's sales to date have been generated
from sales of its Action K.I.D. Systems.

         MARKETING. The Company is currently upgrading its Web site. The site,
among other things, will be used to increase the Company's exposure to the
education industry. It will also be used to transfer didactic materials to the
teachers utilizing the Company's products.

         The Company markets its products to four broad-based categories in the
education industry:

                  EDUCATIONAL INSTITUTIONS. These institutions are often
         directed by government initiatives. They provide a forum for children
         and adults alike to learn through new and innovative technology
         incorporating cooperative group activities often not available in the
         home and other areas. These products are often customized according to
         the concepts being taught.

                  HOME PRODUCTS. This category is geared to learning in the home
         where competition is high. Products are not customized, but are
         differentiated from other off-the-shelf home learning systems by the
         tangible accessory items that are incorporated into the products.

                  LEARNING AND ENRICHMENT CENTERS. These centers are generally
         intended to cater to different sectors of the population that provide
         more specialized instruction.

                  COMMERCIAL PRODUCTS. The Company develops compact disc games
         for promotional use that are commissioned by external companies.

COMPETITION





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<PAGE>

         The market for educational products is highly competitive and is
characterized by rapidly changing customer preferences and little or no
barriers of entry. There are numerous businesses, many of which are better
capitalized than the Company, currently offering software and other products
directed at the same customer base. The Company believes that the primary
competitive factors for the provision of its systems are performance
specifications, sales price, customer service, brand name and service record.
The Company's success will depend heavily upon its ability to provide high
quality systems that meet customer specifications and are competitively
priced. Other factors that will affect the Company's success in this market
include the Company's ability to attract additional experienced marketing,
sales, and management talent and the expansion of worldwide training
capabilities.

         The Company's current and prospective competitors vary greatly from
small private multimedia publishers with 10-20 employees to large
international corporations with revenues in excess of $300 million in annual
sales. The Company believes that their products are differentiated from
nearly all their competitors by the uniqueness of the combination of
technology, software and didactic aides that are incorporated into the
products. Some or all of the Company's actual and potential competitors have
greater market presence, engineering, marketing, sales and distribution
capabilities, and financial, technological and personnel resources than those
available to the Company. As a result, they may be able to adapt more swiftly
to new or emerging technologies and changes in customer specifications, take
advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products than can the
Company.

         Because price is a major competitive factor in the market for the
Company's products, if any of the Company's present or future competitors elect
to initiate and support prolonged price competition to gain market share, the
Company likely would be forced to lower its prices, possibly for a protracted
period, which would have a material adverse effect on its financial condition
and results of operations and could threaten its economic viability.

         The Company believes that several factors will enable it to
effectively compete, including a longer product shelf life for the Company's
products than the shelf lives of regular multimedia educational products,
ease of product adaptation, and a relatively short development cycle due to
significant development experience. Other means that the Company believes it
is able to differentiate itself from its competitors lie in the nature of the
products themselves which are developed and tailored for school use, thereby
making it easier for teachers to integrate the Company's products into the
classroom.

 EMPLOYEES

         As of June 30, 1999, Multimedia had approximately 27 employees, all
of which were full-time employees. None of the employees are represented by a
labor union, and the Company considers its relations with employees to be
good.


RESEARCH AND DEVELOPMENT

         Multimedia is currently developing a new line of products based on the
technology contained in the Action K.I.D. system. One new application
currently under development targets adults in management-level positions and is
intended to impart management strategies and to enhance sales. The Company is
also planning the development of a virtual helmet that will allow users to the
systems to receive instructions and other applications.

         Since the beginning of the calendar year ended December 31, 1999,
the Company's research and development activities have primarily been
directed towards the development of the My K.I.D and Action K.I.D. systems.
Research and development expenses were $319,467 for the six months ended June
30, 1999 and $697,611 and $223,486 for the years ended December 31, 1998 and
1997, respectively.


INTELLECTUAL PROPERTY

         The Company relies on a combination of trade secret laws and
contractual restrictions to establish and protect its technology. The Company is
in the process of registering certain trademarks. There can be no assurance that
the steps taken by the Company will be adequate to prevent misappropriation of
its technology or



                                       6
<PAGE>

that the Company's competitors will not independently develop technologies
and products that are substantially equivalent or superior to the Company's
technology and products. In addition, there can be no assurance that licenses
for any intellectual property that may be required for the Company to provide
services or develop products would be available on reasonable terms, if at
all.

         The Company has not historically required trade secrecy and
confidentiality agreements to be executed by its employees or independent
software developers in order to protect its rights in its proprietary
technology. The Company is in the process of requiring employees, contractors
and distributors to execute such agreements. No assurance can be given that
such measures will be effective in protecting the Company's rights in its
present or future technology.

         The Company has filed applications with the Israeli Registry of
Trademarks for My K.I.D. and five of the animated figures incorporated into
the product. Additionally, the Company intends to file for U.S. trademarks
for the same. There can be no assurance that tradename protection can be
obtained for these names. Although the Company does not believe that its
products or tradenames infringe upon the proprietary rights of any third
parties and no third parties have asserted trademark, patent, or copyright
infringement or other similar claims against the Company, there can be no
assurance that third parties will not assert such claims against the Company
in the future or that such claims will not be successful. The Company could
incur substantial costs and diversion of management resources with respect to
the defense of any claims relating to proprietary rights which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, parties making such claims could secure a
judgment awarding substantial damages, as well as injunctive or other
equitable relief which could effectively block the Company's ability to sell
product in the United States or abroad. Such a judgement could have a
material adverse effect on the Company's business, financial condition or
results of operations.

         The laws of certain foreign countries where the Company distributes or
intends to distribute its products do not effectively protect technology,
trademarks or tradenames that the Company uses in its business and considers
proprietary. The Company has not undertaken to investigate such laws or to
assure that available protection is obtained.


ADDITIONAL CONSIDERATIONS AND RISK FACTORS RELATING TO MULTIMEDIA'S BUSINESS

      MULTIMEDIA HAS A HISTORY OF LOSSES AND HAS LIMITED REVENUES AND CAPITAL
RESOURCES. Multimedia has not operated profitably and has experienced net losses
of approximately $111,000 for the six months ended June 30, 1999 and
approximately $50,000 and $428,000 for the fiscal years ended December 31, 1997
and 1998, respectively. Moreover, the Company's revenues from sales of products,
services and marketing rights were approximately $748,000, $714,000 and
$1,499,000 over the same periods. There can be no assurance that the Company
will ever be able to generate significant revenues or profits from operations.

      NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE. The markets for the
Company's products are characterized by technological change, evolving
industry standards and frequent new product introductions and enhancements.
The introduction of products embodying new technologies and the emergence of
new industry standards could render the Company's existing products and
products currently under development obsolete and unmarketable. The Company's
future success will depend upon its ability to enhance its current products
and develop and successfully introduce and sell new products that keep pace
with market developments and respond to evolving end-user specifications. Any
failure by the Company to anticipate or respond adequately to technological
developments or end-user specifications, or any significant delays in product
development or introduction, could damage the Company's competitive position
in the marketplace and reduce revenues. The Company may need to increase the
size of its product development staff in the near term to meet these
challenges. There can be no assurance that the Company will be successful in
hiring and training adequate product development personnel to meet its needs.
There can be no assurance that the Company will be successful in developing
and marketing new products or product enhancements on a



                                       7
<PAGE>

timely basis or that the Company will not experience significant delays in the
future. Any failure to successfully develop and market new products and product
enhancements would have a material adverse effect on the Company's results of
operations.

         RISKS OF PRODUCT DEVELOPMENT IN GENERAL. The success of the Company
is dependent upon its ability to deliver reliable, easy-to-use and
technologically up-to-date educational products. Any failure of the Company's
existing or new products to meet client specifications or expectations will
have a material adverse effect on the Company's reputation and the demand for
the Company's products. There can be no assurance that the Company's products
will meet such specifications or expectations. In addition, continued demand
for the Company's products will depend on its ability to successfully
anticipate customer demand and to integrate new and emerging technologies,
features and standards into its products on a timely basis. Any failure by
the Company to anticipate customer demand and to successfully integrate new
features and standards into its products on a timely basis could adversely
affect the Company's reputation, demand for its products and, as a result,
its financial condition and results of operations.

         COMPETITION. The market for educational products is highly
competitive and is characterized by technological change, rapidly changing
customer preferences and little or no barriers to entry. There are many
businesses, many of which are better capitalized than the Company,
currently offering products similar in type or scope to the Company's
products. The Company's success will depend heavily upon its ability to
provide high quality products that meet the demand of educators and
consumers. Other factors that will affect the Company's success in this
market include the Company's ability to attract additional experienced
marketing, sales, and management talent, and the expansion of worldwide
support, training, and service capabilities. The Company's current and
prospective competitors vary greatly from small private multimedia publishers
with 10-20 employees to large international corporations with revenues in
excess of $300 million in annual sales. Some or all of the Company's actual
and potential competitors may have greater market presence, engineering,
customer support and marketing capabilities, and financial, technological and
personnel resources than those available to the Company. As a result, they
may be able to adapt more swiftly to new or emerging technologies and changes
in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than can the Company.

      Because price is a major competitive factor in the market for the
Company's products, if any of the Company's present or future competitors elect
to initiate and support prolonged price competition to gain market share, the
Company likely would be forced to lower its prices, possibly for a protracted
period, which would have a material adverse effect on its financial condition
and results of operations and could threaten its economic viability.

         SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS. The Company has
experienced and expects to continue to experience significant fluctuations in
its quarterly results. Such fluctuations may be caused by many factors,
including, but not limited to: the size and timing of individual orders;
seasonality of revenues; lengthy sales cycle; delays in introduction of
products or product enhancements by the Company or other providers of
components for the Company's systems; competition and pricing in the
educational products industry; market acceptance of new products; reduction
in demand for existing products and shortening of product life cycles as a
result of new product introductions by competitors; foreign currency exchange
rates; mix of products sold; conditions or events in the education industry;
and general economic conditions. The Company does not typically maintain a
significant backlog and therefore the revenue results for each quarter depend
substantially on orders received and delivered in that quarter. As a result
of the relatively high revenue amount for certain products and relatively low
unit volume of those systems, any lost or delayed sales will have a
disproportionately greater effect on the Company's revenues and quarterly
results relative to companies that have higher unit sales volumes and less
revenue associated a particular product. The Company's sales cycle varies
greatly with the different products. For the higher priced systems, the
typical sales cycle is three to six months from the


                                       8
<PAGE>

time initial sales contact is made with a qualified prospect, making the timing
of the Company's revenues difficult to predict and the Company's quarterly
results difficult to forecast. The Company's sales cycle relating to the lower
costing products is anywhere from two weeks to two months. The Company's expense
levels are based in part on its forecasts of future revenues. Accordingly, since
a large portion of the Company's expenses are fixed in nature, the Company would
not be able to quickly curtail expenses in response to a decline in revenues,
and operating results for a given quarter would be adversely affected. As a
result, revenues for any quarter are subject to significant variation and the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as indications of
future performance. To the extent that the Company's Common Stock is publicly
traded, fluctuations in operating results may also result in volatility in the
market price of the Company's Common Stock.

         MANAGEMENT OF GROWTH. To manage its growth effectively, the Company
will be required to continue to implement and improve its operating and
financial systems and to expand, train and manage its employee base. There
can be no assurance that the management skills and systems currently in place
will be adequate if the Company continues to grow. In addition, although no
acquisitions of companies or products, other than the reverse acquisition of
Jenkon, are currently being negotiated, the Company may make acquisitions in
the future. The Company's management has only limited experience with
acquisitions, which involve numerous risks, including difficulties in the
assimilation of acquired operations and products, the diversion of
management's attention from other business concerns and the potential loss of
key employees of the acquired companies.

         DEPENDENCE ON THIRD PARTY SOFTWARE AND HARDWARE. The Company's products
incorporate and use software products and computer hardware and equipment
developed by other entities. The operating systems on which the Company's
products can function (Windows 95-98 and NT) have been developed or are owned by
Microsoft Corporation. The computer hardware and equipment sold as part of the
Company's turnkey system are manufactured by the Pentium Company (an Israeli
Company), and others. There can be no assurance that all of these entities will
remain in business, that their product lines will remain viable or that these
products will otherwise continue to be available to the Company. If any of these
entities ceases to do business, or abandons or fails to enhance a particular
product line, the Company may need to seek other suppliers. This could have a
material adverse effect on the Company's results of operations. In addition,
there also can be no assurance that the Company's current suppliers will not
significantly alter their pricing in a manner adverse to the Company.

         OPERATIONS IN ISRAEL. Multimedia's operations are based in Israel
and, as a result, the Company's financial results and prospects are directly
affected by economic, political and military conditions in Israel. Moreover,
some of the Company's employees may be obligated to perform annual reserve
duty in the Israeli Defense Forces and are subject to being called for active
duty at any time upon the outbreak of hostilities. Any adverse economic,
political or military developments in Israel could have a material adverse
effect on the Company and its ability to operate.

         NEED FOR ADDITIONAL CAPITAL. The Company's business involves the
continued investment of funds towards the development of new products and
modifications of existing products as well as sales and marketing efforts
related thereto. To the extent that the Company is unsuccessful in generating
significant cash flow from operations in order to fund such investments in
product development, sales and marketing, the Company will need to rely on
outside financing sources for working capital. The Company currently has no
significant bank line of credit and there can be no assurance that the
Company will be able to obtain sources of outside financing on favorable
terms, if at all, in the event that such financing is required in the future.
To the extent that the Company's operation do not generate positive working
capital or enable it to secure adequate outside financing, the Company's
business would be materially and adversely affected.

                            OTHER CONSIDERATIONS

IF STOCKHOLDER APPROVAL OF CONVERSION OF PREFERRED STOCK AND CONVERTIBLE
PROMISSORY NOTES CANNOT BE OBTAINED ON A TIMELY BASIS, JENKON WILL NOT HAVE
THE CAPITAL RESOURCES TO REPAY CONVERTIBLE PROMISSORY NOTES OR REDEEM ITS
PREFERRED SHARES. Pursuant to the terms of the Series B and Series C
Preferred Stock, in the event that stockholder approval of the conversion of
the Series B and Series C Preferred Stock is not approved by March 31, 2000
(or any later date as the majority of such preferred stockholders may
approve), Jenkon may be required to redeem the preferred shares for an
aggregate redemption price of approximately $24 million. In addition, in the
event Jenkon's stockholders do not approve the conversion of the Convertible
Promissory Notes into Common Stock prior to March 31, 2000 (or such later
date as the holders of such notes may agree), the notes will be payable in full.
Jenkon is currently attempting to obtain extensions of the stockholder
approval deadline to May 31, 2000. If such extension cannot be obtained from
Noteholders and holders of a majority of the Series B and Series C Preferred
Stock, the Company would not have sufficient capital resources to redeem the
preferred stock and to repay the Notes. Accordingly, in the event that
stockholder approval of conversion of the preferred stock and convertible
notes are not approved in a timely manner, the Company's financial position
would be severely adversely affected.

ITEM 2.           DESCRIPTION OF PROPERTY

The Company leases approximately 300 square meters of office and 180 square
meters of factory space in Petach-Tikva, Israel. The Company also leases
approximately 160 square meters of factory and warehouse space in Rosh Haain,
Israel. The Company believes its facilities are adequate for its present needs
and that suitable space would be available to accommodate its future needs.

                                       9
<PAGE>

ITEM 3.           LEGAL PROCEEDINGS

         Multimedia is not currently a party to any material lawsuit, claim or
proceeding.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.


                                     PART II
                                     -------

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Multimedia was not a publicly traded company as of June 30, 1999.
Information regarding Jenkon is contained in Jenkon's Form 10-KSB for the
fiscal year ended June 30, 1999.


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

         THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION INCLUDED ELSEWHERE HEREIN. WHEN USED IN THE FOLLOWING
DISCUSSIONS, THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS," AND
SIMILAR EXPRESSIONS ARE



                                       10
<PAGE>

INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALY FROM THOSE PROJECTED, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH
IN "RISK FACTORS" BELOW. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.

GENERAL

         On December 16, 1999, Multimedia and the holders of all Multimedia's
stock entered into a Stock Exchange Agreement and Plan of Reorganization (the
"Agreement" or "Transaction") and became a wholly-owned subsidiary of, Jenkon
International, Inc. ("Jenkon"). As set forth in Note 13 in the accompanying
financial statements of Multimedia, for financial reporting purposes the Merger
is treated as the acquisition of Jenkon by Multimedia and is accounted for under
the purchase method of accounting. Accordingly, the Company's reported results
of operations for all periods prior to December 16, 1999 reflect only the
results of operations of Multimedia.

         Therefore, results of operations and financial position of Jenkon
(reflected in periodic reports filed by Jenkon covering periods ended prior
thereto) and of Multimedia (reflected herein) prior to December 16, 1999 are not
comparable to the consolidated results of operations of the Company subsequent
to such date which will reflect the results of Jenkon (only since such date) and
Multimedia (for the entire period). Furthermore, the following discussions and
analyses concerns the results of operations and financial position of Multimedia
on a stand-alone basis as of and for the six months ended June 30, 1998 and
1999. Accordingly, it is not necessarily indicative of the Company's (including
Multimedia's and Jenkon's) results on a consolidated basis that are to be
expected for a full year.

         Revenues from the sale of Action K.I.D. systems are recognized upon
customer acceptance. Revenues from the sale of all other Multimedia products are
generally recognized upon shipment.

         Research and development costs net of grants are charged to expenses as
incurred. Statement of Financial Accounting Standards ("SFAS") No. 86
"Accounting for the Costs fo Computer Software to be Sold, Leased or Otherwise
Marketed," requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility.

         The Company and its predecessor, PMD, which operated certain assets of
the Company prior to selling them to Multimedia in 1996, have a history of
losses. The Company sustained net losses of $111,085 and $242,733 for the six
months ended June 30, 1999 and 1998, respectively and $428,051 and $50,148 for
the years ended December 31, 1998 and 1997, respectively.

         The Company has a history of concentrated revenue from single
customers. During the six months ended June 30, 1999 three customers accounted
for 97.7% of total revenues while two customers accounted for 93.8% of total
revenues for the six months ended June 30, 1998. For the year ended December 31,
1998, three customers accounted for 88.2% of total revenues while for the year
ended December 31, 1997, four customers accounted for 79.8% of total revenues
for the same period in 1997. Similar or greater concentration of its total
revenues among a limited number of customers may continue in the future. Any
material decrease in total revenues among a limited number of customers may
continue in the future. Any material decrease in total sales to any one the of
company's largest customers that is not matched by corresponding increases in
total sales to new or existing customers could have a material adverse effect on
the Company's financial condition and results of operations and could threaten
its economic viability. There can be no assurance that the Company will receive
orders from any existing customers or from new customers.


RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998


                                       11
<PAGE>

REVENUES. Total revenues were very similar between the two periods having
decreased only $10,596 or 1.4% to $747,743 for the six months ended June 30,
1999 from $758,339 for the same period in 1998.

COST OF REVENUES. Cost of revenues decreased $114,332 or 35.5% to $207,363 for
the six months ended June 30, 1999 from $321,695 for the same period in 1998.
The decrease is primarily attributable to the hiring of outside consultants to
develop products sold during the six months ended June 30, 1998. Nearly all
product development related to cost of revenues during the six month period
ended June 30, 1999 was completed by employees, thus reducing expenses
significantly.

GROSS PROFIT. Gross profit increased 23.8% or $103,736 for the six months ended
June 30, 1999 to $540,380 from $436,644 for the same period in 1998. Gross
profit as a percent of total revenues increased to 72.3% in 1999 from 57.6% for
1998. The increases are a direct result of the decrease in consultant expenses
as described under cost of revenues.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
by 17.3% or $66,948 to $319,467 for the six months ended June 30, 1999 from
$386,415 for the same period in 1998. The decrease is primarily related to the
completion of the development of two of the Company's major projects that
required additional outside consultants for during the first half of 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by 4.9% or $14,037 to $270,487 for the six
months ended June 30, 1999 from $284,524 for the same period in 1998. The small
decrease is due to lower expenses related to overseas travel and related
marketing activities slightly offset by a small increase in general and
administrative expenses.

FINANCIAL EXPENSES. Financial expenses increased 629.0% or $53,073 to $61,511
for the six months ended June 30, 1999 from $8,438 for the same period in 1998.
The increase is a direct result of the financing obtained to fund operations.

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

REVENUES. Total revenues increased 109.9% or $785,051 to $1,499,082 for the year
ended December 31, 1998 from $714,031 for the same period in 1997. The increase
is directly related to the introduction of the Action K.I.D. system to the
product line. The system's high retail price coupled with the sale of two Action
K.I.D. systems during the year ended December 31, 1998 accounts for nearly the
entire increase.

COST OF REVENUES. The cost of revenues increased by 154.6% or $431,033 to
$709,794 for the year ended December 31, 1998 from $278,761 for the same period
in 1997. The increase is primarily attributable to the transfer of employees
from PMD to Multimedia during 1998 in addition to the materials for the Action
K.I.D. systems sold during the year.

GROSS PROFIT. Gross profit increased 81.3% or $354,018 to $789,288 for the year
ended December 31, 1998 from $435,270 for the same period in 1997. Overall gross
profit as a percentage of total revenues decreased to 52.7% from 61.0% for the
years ended December 31, 1998 and 1997, respectively. The decrease is
attributable to a change in product mix, whereby the initial sales of Action
K.I.D. did not have as high of a gross profit margin as the other products.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
212.1% or $474,125 to $697,611 for the year ended December 31, 1998 from
$223,486 for the same period in 1997. The increase is primarily attributable to
the transfer of employees dedicated to research and development from PMD to
Multimedia during 1998. Additionally, the Company directed significant efforts
towards the development the Action K.I.D. and My K.I.D. systems during 1998 and
the multilingual aspects of the products in general.

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative  expenses  increased  110.9% or $263,568 to $501,310 for the year
ended  December 31, 1998 from $237,742 for the same period in 1997. The increase
is primarily


                                       12
<PAGE>

attributable to the transfer of employees dedicated to selling, general and
administrative tasks from PMD to Multimedia during 1998.

FINANCIAL EXPENSES. Financial expenses decreased 23.9% or $5,772 to $18,418 for
the year ended December 31, 1998 from $24,190 for the same period in 1997. The
decrease is a result of the weakness of the Israeli currency against the US
dollar. Interest payments made by the Company on its line of credit are paid in
Israeli currency and are not dollar linked.

LIQUIDITY AND CAPITAL RESOURCES

The Company has employment agreements with five of its employees including one
executive officer. The terms of the agreement with the executive officer
provides for a monthly salary of 45,000NIS (approximately US $11,500 as of March
17, 2000) indexed to the Israeli Consumer Price Index and a contribution equal
to 7.5% of gross salary to an advanced study fund under the officer's name. The
agreement with the officer has an indefinite time period, but can be terminated
by written notice at least 180 days prior to termination. The agreements with
the remaining four employees provide for total monthly salary payments of
45,674NIS (approximately US $11,700 as of March 17, 2000). These four agreements
have an indefinite time period, but can be terminated by written notice at least
90 days prior to termination.

For the six months ended June 30, 1999, operating activities used net cash of
$795,394 primarily due to a net loss of $111,085, an increase in trade accounts
receivable of $575,378 and a decrease in trade accounts payable of $184,723
offset by an increase in accounts payable other of $128,446. Investing
activities used net cash of $237,693 due primarily to the investment in deposits
of $204,763. Financing activities provided net cash of $1,048,492 during the six
months ended June 30, 1999 as a result of the issuance of share capital of
$850,000, an increase in short-term credit from banks and current maturities of
long-term liabilities of $213,602 and proceeds from loans and capital leases of
$548,704 offset by repayment of debt to a company under common control of
$560,137.

For the year ended December 31, 1998, operating activities used net cash of
$1,149,972 primarily due to a net loss of $428,051, an increase in trade
accounts receivable of $490,012, a decrease in accounts payable other of
$193,579 and an increase in inventory of $224,486 offset by a decrease in trade
accounts payable of $85,310. Investing activities used net cash of $166,968 for
the purchase of fixed assets. Financing activities provided net cash of
$1,321,514 primarily due to the issuance of share capital of $495,136, receipts
on account of shares of $1,000,000 and an increase in short-term credit from
banks and current maturities of long-term liabilities of $142,689 offset by debt
repayment to a company under common control of $330,488.


YEAR 2000

         Like many other companies, Multimedia is subject to risks from the Year
2000 computer issue. The Company has undertaken various initiatives intended to
ensure that its computer systems, software and other operational equipment will
function properly with respect to dates in the Year 2000 and thereafter.

         The Company has completed what it believes is a reasonable and thorough
review of Year 2000 issues on its operations, liquidity and financial condition.
The review includes identifying the related issues and risks that could have a
material effect on the Company. To date, no significant issues have been
identified with respect to the Company's systems or any significant third
parties dealing with the Company. Identified issues or reasonably foreseeable
circumstances are not expected to have a material affect on the Company's
systems or operations.

         The Company has incurred insignificant costs related to its Year 2000
assessment, remediation and testing efforts, and does not anticipate any costs
to be incurred with respect to Year 2000 issues of third parties. Any such
expenses, if incurred, will be funded from operating cash flows. This estimate
is subject to change as additional information is obtained in connection with
the Company's assessment of the Year 2000 issue.


                                       13
<PAGE>

         The Company presently believes that Year 2000 issues will not pose
significant problems for the Company. However, if all Year 2000 issues are not
properly identified, or assessment, remediation and testing are not effected
timely with respect to Year 2000 problems that are identified, there can be no
assurance that the Year 2000 issue will not have a material adverse impact on
the Company's business, financial condition or results of operations, or
adversely affect the Company's relationships with customers, vendors and others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities, such as one or more of the Company's critical customers or suppliers,
will not have a material adverse impact on the Company's systems or its
business, financial condition or results of operations. The costs of the
Company's Year 2000 assessment, remediation and testing efforts are
forward-looking statements that are based upon management's best estimates.

EURO CURRENCY CONVERSION

         European Union ("EU") finance members have approved 11 of the 15 EU
member states for participation in an economic and monetary union. On January 1,
1999, the Euro was adopted as the national currency of the participating
countries--Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, Netherlands, Portugal and Spain. Initially, the Euro will be used
for non-cash transactions. Currency of the participating member states ("legacy
currencies") will remain legal tender until January 1, 2002. On this date,
Euro-denominated bills and coins will be issued for use in cash transactions.

         The introduction of the Euro is a significant event with potential
implications for the Company's existing customers within countries participating
in the European Monetary Union. As such, the Company has committed resources to
conduct risk assessments and to take corrective actions, where required, to
ensure that it is prepared for the introduction of the Euro.

         The Company has not experienced any significant operational disruptions
to date and does not currently expect the continued implementation of the Euro
to cause any significant operational disruptions. Additionally, the Company has
not incurred and does not expect to incur any significant costs from the
continued implementation of the Euro, including any currency risk, which could
materially affect the Company's liquidity or capital resources.

NEW ACCOUNTING STANDARD

         Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended by
Statement of Financial Accounting Standards No. 137, issued by the FASB is
effective for financial statements beginning after June 15, 2000. The new
statement requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. The Company does not expect
adoption of SFAS No. 133 to have an effect on its financial position, or results
of operations and any effect will be limited to the form and content of its
disclosures.


FORWARD-LOOKING STATEMENTS

         When included in this Annual Report on Form 10-KT, the words "expects,"
"intends," "anticipates," "plans," "projects" and "estimates," and analogous or
similar expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in Item 6 and Item 1 hereof, are
inherently subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those reflected in such forward-looking
statements. For a discussion of certain of such risks, see the subsection of
Item 1


                                       14
<PAGE>

entitled "Risk Factors." These forward-looking statements speak only as
of the date of this Transition Report on Form 10-KT. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statement contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.



ITEM 7. FINANCIAL STATEMENTS

     See the Financial Statements and related Report of Independent Certified
Public Accountants included herewith as pages F-1 through F-22


ITEM 8. CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE

     Not applicable.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
        MULTIMEDIA

         The following information is presented with respect to the
background of the officer and director of Multimedia as of June 30, 1999:

PESSIE GOLDENBERG, 46, is a founder and has served as Chief Executive Officer of
Multimedia since the Company's incorporation and was appointed as a board member
in December 1999. Prior to founding Multimedia, Mr. Goldenberg founded P.M.D.,
the previous owner of certain of the Multimedia's current assets. Since 1992, he
has served as the Managing Director of PMD.

         The following information is presented with respect to the
background of each person who is not an executive officer of Multimedia, but
who is expected to make a significant contribution to the Company:

TZIPI BEN-AMI, 41, serves the Company as the Director of Product Development.
Ms. Ben-Ami worked at PMD before transferring to the Company in 1996.

SIMA MASHALL, 34, serves the Company as Director of Administration. Ms. Mishal
worked at PMD before transferring to the Company in 1996.


                                       15
<PAGE>

VLADAMIR TARNOPOLSKY, 43, serves the Company as the Head of Computer
Programming. Mr. Tarnopolsky worked at PMD before transferring to the Company in
1996.

YONA MOST, 48, serves the Company as the Chief Graphics Designer. Ms. Yost
worked at PMD before transferring to the Company in 1996.


ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation of Pessie
Goldenberg, Multimedia's Chief Executive Officer. Mr. Goldenberg was
Multimedia's only executive officer prior to the Merger whose cash compensation
exceeded $100,000 during the Company's year ended June 30, 1999, for services in
all capacities to Multimedia during the years ended June 30, 1999 and 1998.

<TABLE>
<CAPTION>

                                                              Long-Term
                                    Annual Compensation      Compensation
                                    -------------------      -------------
                                                                            All Other
Name and Principal Position       Year        Salary          Options#    Compensation
- ---------------------------       ----        ------          --------    ------------


<S>                               <C>       <C>               <C>         <C>
Pessie Goldenberg                 1999      $149,461(1)         400(5)      $19,855(2)
   Chief Executive Officer        1998      $ 75,781(3)          --         $10,335(3)(4)

</TABLE>
- --------------------------------




(1)        The Company is a party to an employment agreement with Mr. Goldenberg
           which, as amended in connection with the Acquisition of PMD, provides
           for a revised annual salary of approximately $150,000, subject to
           increases and bonuses at the discretion of the Company's Board of
           Directors. Mr. Goldenberg's employment agreement may be terminated by
           him or by the Company at any time on 180 days written notice.

(2)        "All Other Compensation" for fiscal 1999 includes (i) $2,116,
           representing the Company's contribution allocated to Goldenberg under
           the Company's Pension Plan in fiscal 1999 and (ii) $10,911, which was
           the Company's matching contribution in fiscal 1999 to Goldenberg's
           course fund (an Israeli employee benefit providing employees the
           opportunity to save money for certain employer permitted purposes)
           and (iii) $6,828, representing the Company's portion of Health and
           National Insurance.

(3)        Mr. Goldenberg was only included on the payroll of Multimedia since
           January 1998. Prior to January 1998, he received a similar
           compensation package from PMD. Only his salary as was paid by
           Multimedia is included for 1998.

(4)        "All Other Compensation" for fiscal 1998 includes (i) $1,157,
           representing the Company's contribution allocated to Goldenberg under
           the Company's Pension Plan in fiscal 1998 and (ii) $5,528, which was
           the Company's matching contribution in fiscal 1998 to Goldenberg's
           course fund and (iii)


                                       16
<PAGE>

           $3,650, representing the Company's portion of Health and National
           Insurance.

(5)        Mr. Goldenberg was granted an option to purchase 400 ordinary shares
           of Multimedia in June 1999. The option is subject to certain
           performance criteria, vests at 24 months and has an exercise price of
           $1,250 per ordinary share.




                                       17
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding ownership of Jenkon Common Stock is contained
in Jenkon's Form 10K-SB for the fiscal year ended June 30, 1999. As of March
1, 2000, Pessie Goldenberg, a Director and Officer of the Company owned
234,418 shares of Jenkon Common Stock representing 4.26% of the outstanding
Common Stock on such date. This ownership percentage does not include shares
issuable upon conversion of Preferred Stock that is subject to approval by
Jenkon's stockholders.


                                       18
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Pursuant to an agreement dated January 21, 1996, the Company was
granted a right of first refusal to purchase all the rights (the "Rights") to an
interactive learning system named "Multimedia K.I.D." from P.M.D., at that time
a company owned and operated by an executive officer of the Company, for
$1,750,000.

    On March 15, 2000, Jenkon signed a Stock Exchange Agreement and Management
Services Agreement for the sale of all the stock of its wholly owned Summit V
subsidiary. The acquisition is contingent upon shareholder approval.

ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KT

                    (a)    Exhibits


EXHIBIT
NUMBER                      DESCRIPTION
- --------                    -----------

10.1                        Form of Employment Agreement of Pessie Goldenberg







                                   SIGNATURES


                    Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                              MULTIMEDIA K.I.D.. LTD

Dated: March 28, 2000

                                              By:  /s/ Pessie Goldenberg
                                                   -----------------------------
                                                   Pessie Goldenberg
                                                   Chief Executive Officer

                    Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.



                                       19
<PAGE>

Signature                        Capacity
Date
- ---------                        --------


/s/ Pessie Goldenberg            Chief Executive Officer
- ------------------------         (Principal Executive Officer
March 28, 2000                   and Principal Accounting
Pessie Goldenberg                Officer)and Director


/s/ David A. Edwards             Director
- ------------------------
March 28, 2000
David A. Edwards






                                       20

<PAGE>

                 MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.

                    FINANCIAL STATEMENTS AS OF JUNE 30, 1999

                            (AN ISRAELI CORPORATION)


                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>
                                                                                           Page
                                                                                         ---------
<S>                                                                                      <C>
Report of Certified Public Accountants                                                     F-1
Balance Sheets                                                                           F-2 - 3
Statements of operations                                                                   F-4
Statements of changes in shareholders' deficit                                             F-5
Statements of cash flows                                                                   F-6
Notes to  Financial Statements                                                           F-7 - 22
</TABLE>



<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


TO THE SHAREHOLDERS OF
MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LIMITED
ISRAEL

         We have audited the accompanying balance sheet of Multimedia Kid -
Intelligence in Education Ltd. (the "Company") as of June 30, 1999 and the
related statement of operations, changes in shareholders' deficit and cash flows
for the six months ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

         We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.

         In our opinion, based on our audit, the financial statements present
fairly, in all material respects, the financial position of Multimedia Kid -
Intelligence in Education Ltd. as of June 30, 1999 and the results of its
operations and cash flows for the six months ended June 30, 1999 in conformity
with generally accepted accounting principles in the United States.




Tel-Aviv, Israel
March 14,  2000



                                                   BDO SHLOMO ZIV & CO.
                                            CERTIFIED PUBLIC ACCOUNTANTS (ISR.)




                                    F-1-

<PAGE>
                          INDEPENDENT AUDITOR'S REPORT


TO THE SHAREHOLDERS OF
MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LIMITED
ISRAEL

         We have audited the accompanying balance sheet of Multimedia Kid
- - Intelligence in Education Ltd. (the "Company") as of December 31, 1998 and
1997 and the related statement of operations, changes in shareholders'
deficit and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

         We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.

         In our opinion, based on our audit, the financial statements present
fairly, in all material respects, the financial position of Multimedia Kid
- -Intelligence in Education Ltd. as of December 31, 1998 and 1997 and the
results of its operations and cash flows for the years then ended in
conformity with generally accepted accounting principles in the United States.

Tel-Aviv, Israel
March 12, 2000



                                                       MOSHE HARPAZ
                                            CERTIFIED PUBLIC ACCOUNTANTS (ISR.)

                                    F-1-



<PAGE>


MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
BALANCE SHEETS (IN U.S. DOLLARS)
<TABLE>
<CAPTION>
                                                                                         JUNE 30,        DECEMBER 31,
                                                                                           1999              1998
                                                                                      ----------------  ----------------
<S>                                                                                    <C>               <C>
ASSETS
CURRENT ASSETS:
   Cash                                                                                $   20,477        $    4,992
   Short term investments (Note 2)                                                         40,000             -
   Accounts receivable (Note 9a)
      Trade                                                                               918,813           295,315
      Other                                                                               147,176            68,725
   Inventories (Note 9b)                                                                  550,000           534,939
                                                                                          -------           -------
      TOTAL CURRENT ASSETS                                                              1,676,466           903,971
                                                                                          -------           -------


LONG-TERM RECEIVABLE:
   Net of current maturities (Note 9c)                                                    183,438           231,558
                                                                                          -------           -------

LONG-TERM INVESTMENTS:
   Long-term investment (Note 2)                                                          160,000             -
   Severance pay fund (Note 5)                                                             73,108            51,578
                                                                                          -------           -------
                                                                                          233,108            51,578
                                                                                          -------           -------

FIXED ASSETS: (Note 3)
   Cost                                                                                   296,623           263,693
   Less - accumulated depreciation                                                         86,877            54,745
                                                                                          -------           -------
                                                                                          209,746           208,948
                                                                                          -------           -------






                                                                                         --------          --------
                                                                                       $2,302,758        $1,396,055
                                                                                       ==========        ==========

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                      F-2-
<PAGE>



<TABLE>
<CAPTION>
                                                                                         JUNE 30,        DECEMBER 31,
                                                                                           1999              1998
                                                                                      ----------------  ----------------
<S>                                                                                       <C>            <C>
LIABILITIES AND SHAREHOLDERS DEFICIT
CURRENT LIABILITIES:
   Short-term credit from bank and current maturities
      of long-term liability (Note 9d)                                                    $  798,695     $  438,863
   Accounts payable and accruals:
      Trade                                                                                   65,969        250,692
      Other (Note 9e)                                                                        309,318        180,872
   Amount due to PMD - a company under common
      control - net (Note 1a(2))                                                             677,072      1,237,209
                                                                                            --------       --------
      TOTAL CURRENT LIABILITIES                                                            1,851,054      2,107,636
                                                                                            --------       --------

LONG-TERM LIABILITIES:
   net of current maturities (Note 4)                                                        498,024         80,866
                                                                                            --------       --------

ACCRUED SEVERANCE PAY (Note 5)                                                               150,000        142,788
                                                                                            --------       --------

COMMITMENTS (Note 6)
                                                                                            --------       --------
      TOTAL LIABILITIES                                                                    2,499,078      2,331,290
                                                                                            --------       --------

SHAREHOLDERS DEFICIT:
   Share capital - Ordinary Shares of NIS 1 par value
      authorized: 23,000 shares;
      issued and outstanding: June 30, 1999 - 4,000 shares;
      December 31, 1998 - 2,000 shares                                                         1,082            588
   Additional paid in capital                                                              2,344,372        494,866
   Receipts on account of shares                                                             -            1,000,000
   Rights in products acquired from a company under
      common control (Note 1a(2))                                                         (1,750,000)    (1,750,000)
   Accumulated deficit                                                                      (791,774)      (680,689)
                                                                                           ---------       --------
      TOTAL SHAREHOLDERS DEFICIT                                                            (196,320)      (935,235)
                                                                                           ---------       --------

                                                                                           ---------       --------
                                                                                          $2,302,758     $1,396,055
                                                                                          ==========     ==========

</TABLE>



                                      F-3-

<PAGE>



MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
STATEMENTS OF OPERATIONS  (IN U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                                 FOR THE SIX MONTHS ENDED             FOR THE YEAR ENDED
                                                              ------------------------------- -----------------------------------
                                                                 JUNE 30,        JUNE 30,       DECEMBER 31,      DECEMBER 31,
                                                                   1999            1998             1998              1997
                                                              ------------------------------- ----------------- -----------------
                                                                                UNAUDITED

<S>                                                                <C>             <C>           <C>                <C>
Revenues (Note 10a)                                                $ 747,743       $ 758,339     $1,499,082         $ 714,031
Cost of revenues (Note 10b)                                          207,363         321,695        709,794           278,761
                                                                     -------         -------       --------            ------
      Gross profit                                                   540,380         436,644        789,288           435,270
Research and development costs (Note 1e)                             319,467         386,415        697,611           223,486
Selling, general and administrative expenses (Note 10c)              270,487         284,524        501,310           237,742
                                                                     -------         -------       --------            ------
    Operating loss                                                    49,574         234,295        409,633            25,958
Financial expenses, net (Note 10d)                                    61,511           8,438         18,418            24,190
                                                                     -------         -------       --------            ------
       Net loss                                                    $ 111,085       $ 242,733     $  428,051        $   50,148
                                                                   =========       =========     ==========        ==========


Basic and diluted net loss per share (Note 12)                     $  33.33        $  182.09     $   256.78        $   50.15
                                                                     ========       ========      =========         =========
Weighted average number of common stock outstanding                   3,333            1,333          1,667            1,000
                                                                      =====            =====          =====            =====
</TABLE>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                      F-4-
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT (IN U.S. DOLLARS)
- ----------------------------------------------------------------

FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR THE SIX MONTHS ENDED
- ---------------------------------------------------------------------------

JUNE 30, 1999
- -------------

<TABLE>
<CAPTION>


                                            NUMBER OF                       ADDITIONAL   RECEIPT ON
                                            ORDINARY                         PAID-IN     ACCOUNT OF
                                             SHARES       SHARE CAPITAL      CAPITAL       SHARES
                                          ------------- ----------------- ------------- -------------

<S>                                       <C>           <C>               <C>           <C>
BALANCE AS OF JANUARY 1, 1997 ..             1,000         $  318         $     -      $     -

   Net loss ....................              -               -                  -            -
                                             -----         ------          ----------    -----------
BALANCE AS OF DECEMBER 31, 1997              1,000            318                -            -

   Issuance of share capital ...             1,000            270             494,866         -
   Receipts on account of shares              -               -                  -        1,000,000
   Net loss ....................              -               -                  -            -
                                             -----         ------          ----------    -----------
BALANCE AS OF DECEMBER 31, 1998              2,000            588             494,866     1,000,000

   Issuance of share capital ...             2,000            494           1,849,506    (1,000,000)
   Net income ..................              -               -                  -            -
                                             -----         ------          ----------    -----------
BALANCE AS OF JUNE 30, 1999 ....             4,000         $1,082          $2,344,372   $     -
                                             =====         ======          ==========    ===========

<CAPTION>
                                             RIGHTS IN PRODUCTS
                                              ACQUIRED FROM A                               TOTAL
                                               COMPANY UNDER           ACCUMULATED      SHAREHOLDERS'
                                              COMMON CONTROL             DEFICIT           DEFICIT
                                           --------------------     ----------------  ----------------

<S>                                            <C>                    <C>                <C>
 BALANCE AS OF JANUARY 1, 1997 ..              $(1,750,000)           $  (202,490)       $(1,952,172)

   Net loss ....................                    -                     (50,148)           (50,148)
                                               ------------           ------------       ------------
BALANCE AS OF DECEMBER 31, 1997                 (1,750,000)              (252,638)        (2,002,320)

   Issuance of share capital ...                    -                        -               495,136
   Receipts on account of shares                    -                        -             1,000,000
   Net loss ....................                    -                    (428,051)          (428,051)
                                               ------------           ------------       ------------
BALANCE AS OF DECEMBER 31, 1998                 (1,750,000)              (680,689)          (935,235)

   Issuance of share capital ...                    -                        -               850,000
   Net income ..................                    -                    (111,085)          (111,085)
                                               ------------           ------------       ------------
BALANCE AS OF JUNE 30, 1999 ....               $(1,750,000)           $  (791,774)       $  (196,320)
                                               ============           ============       ============

</TABLE>

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                      F-5
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------




                                      F-6
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

STATEMENTS OF CASH FLOWS (IN U.S. DOLLARS)
- ------------------------------------------

<TABLE>
<CAPTION>

                                                                     SIX MONTHS ENDED               FOR THE YEAR ENDED
                                                               ----------------------------- ----------------------------------
                                                                 JUNE 30,        JUNE 30,      DECEMBER 31,      DECEMBER 31,
                                                                   1999           1998            1998              1997
                                                               -------------- -------------- ----------------  ----------------
                                                                                 UNAUDITED
CASH FLOW FROM OPERATING ACTIVITIES:

<S>                                                             <C>            <C>            <C>              <C>
   Net loss                                                     $ (111,085)    $ (242,733)    $  (428,051)     $    (50,148)
   Adjustments to reconcile net loss to net cash
       used in operating activities
      Depreciation and amortization                                 32,152         13,588          38,243            13,233
      Increase in accrued severance pay, net                         7,212         93,398          86,186             8,002
      Linkage differences on long-term loans and
       other long-term liabilities                                   1,574           (588)         (2,124)            -
   Changes in operating asset and liability items:
      Increase in accounts receivable:
         Trade                                                    (575,378)      (314,679)       (490,012)          (11,610)
         Other                                                     (78,451)      (106,634)        (21,459)           (6,109)
      Increase (decrease) in accounts payable and accruals:
         Trade                                                    (184,723)       (32,088)         85,310            13,386
         Other                                                     128,446        (81,624)       (193,579)           62,146
      Decrease (increase) in inventories                           (15,061)        20,453        (224,486)         (205,420)
                                                                -----------    -----------    ------------     -------------
      NET CASH USED IN OPERATING ACTIVITIES                       (795,314)      (650,907)     (1,149,972)         (176,520)
                                                                 -----------    -----------    ------------     -------------

CASH FLOW FROM INVESTING ACTIVITIES:
   Purchase of fixed assets                                        (32,930)       (76,702)       (166,968)          (42,650)
   Deposits                                                       (204,763)         -                -                -
                                                                -----------    -----------    ------------     -------------
      NET CASH USED IN INVESTING ACTIVITIES                       (237,693)       (76,702)       (166,968)          (42,650)
                                                                -----------    -----------    ------------     -------------

CASH FLOW FROM FINANCING ACTIVITIES:
   Issuance of share capital                                       850,000        495,136         495,136             -
   Receipts on account of shares                                     -            354,864       1,000,000             -
   Increase in short-term credit from banks and current
      maturities of long-term liabilities                          213,602          4,724         142,689           164,317
   Net change in amount due to PMD - a company under  common
      control                                                     (560,137)      (125,107)       (330,488)           51,736
   Long-term loans received                                        548,704           -             19,470             -
   Discharge of long-term loan and other long-term
      liabilities                                                   (3,677)        (2,426)         (5,293)            -
                                                                -----------    -----------    ------------     -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                        1,048,492        727,191       1,321,514           216,053
                                                                -----------    -----------    ------------     -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                15,485           (418)          4,574            (3,117)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD             4,992            418             418             3,535
                                                                -----------    -----------    ------------     -------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD             $    20,477    $        -     $      4,992     $         418
                                                                ===========    ===========    ============     =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION :
      NET CASH PAID DURING THE PERIOD FOR INTEREST             $    68,864    $    13,478    $     33,257     $      51,544
                                                                ===========    ===========    ============     =============

NON CASH ACTIVITIES :
      RECEIPT ON ACCOUNT OF SHARES WHICH WERE CONVERTED INTO
         COMMON STOCKS                                         $(1,000,000)   $        -     $        -        $      -
                                                                ===========    ===========    ============     =============

      CAPITAL LEASE                                            $     -        $        -     $        -        $     27,631
                                                                ===========    ===========    ============     =============

</TABLE>

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                      F-7
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies are as follows:

A.   GENERAL:

      1.    NATURE OF OPERATIONS:

     Multimedia Kid - Intelligence in Education Ltd. (hereafter: "the Company")
- - an Israeli corporation - was incorporated in January 1996 and commenced
operations on February 1, 1996. The Company develops and markets interactive
learning systems which use computers in a multimedia environment, as well as
develops educational software on behalf of others.

      2.    TRANSACTIONS WITH PMD:

     Pursuant to an agreement dated January 21, 1996, the Company was granted a
right of first refusal to buy all the rights ("the rights") to an interactive
learning system named "Multimedia Kid" and of the cognitive application named
"Action Kid" from P.M.D. Technological and Educational Systems (1992) Ltd.
("PMD"), a company under a common control at that time, for $1,750,000 ("the
purchase price"). In accordance with applicable accounting standards, this
amount was carried to shareholders' equity, as a separate item.

     On April 2, 1998, the Company and PMD agreed to transfer the ownership in
the above rights to the Company. The parties further agreed that the remaining
balance of the purchase price at April 2, 1998 and at December 31, 1997, of
$1,433,000, would be fully paid no later than December 31, 1999. The amount was
paid in January 2000.

     In 1998, the majority of PMD's employees were transferred to the Company.
Upon transfer, the Company received approximately $47,000 from PMD to compensate
the Company for severance pay liability, which accrued in respect of those
employees through the date of transfer.

     On March 9, 1998, the Company acquired tangible assets and inventory for
$100,000 from PMD. Moreover, PMD undertook to transfer all orders and payments
it receives to the company.


                                      F-8
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONT.):

A.   GENERAL:

     3. FUNCTIONAL CURRENCY:

     The currency of the primary economic environment in which the operations of
the Company are conducted is the U.S. dollar ("dollar" or "$"). Most of the
Company's revenues are derived in Israeli currency linked to the dollar or
dollars. Most of the components of the products that the Company develops and
markets are purchased in Israeli currency linked to the dollar or in dollars. To
the extent that the Company's revenues are derived, and expenses are incurred,
in Israeli currency linked to the dollar, contract amounts are stated in dollars
and settled in Israeli currency linked to the changes in the exchange rate
between the dollar and Israeli currency. Thus the functional currency of the
Company is the dollar.

     Transactions and balances originally denominated in dollars or linked
thereto are presented at their original amounts. Balances in non-dollar
currencies are translated into dollars using historical and current exchange
rates for non-monetary and monetary balances, respectively. For non-dollar
transactions and other items (stated below) reflected in the statements of
operations, the following exchange rates are used:

     (1)  For transactions - exchange rates at transaction dates or average
          rates and;
     (2)  For other items (derived from non-monetary balance sheet items such as
          depreciation and changes in inventories) - historical exchange rates.
          The resulting currency transaction gains or losses are carried to
          financial income or expenses, as appropriate.

     4. ACCOUNTING PRINCIPLES:

     The financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP") in the United States.

     5. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:

     The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from those
estimates.


                                      F-9
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONT.):

B.   INVENTORIES:

     Inventories are valued at the lower of cost or market value on a FIFO
(first-in, first out) basis.

C.   FIXED ASSETS:

     Fixed assets are stated at cost and are depreciated on a straight-line
basis over their estimated useful lives.

     The estimated useful life are as follows:

<TABLE>
<CAPTION>
                                                           YEARS
                                                           -----
             <S>                                           <C>
             Computer equipment                             3-4
             Office furniture and equipment                 5-17
             Machinery                                      7-10
             Vehicle                                         7
</TABLE>

D.   REVENUE RECOGNITION:

     According to agreements, revenues from the sales of Multimedia Kid and
other products are generally recognized upon shipment. Revenues from sale of
Action Kid systems are recognized upon acceptance by the customer.

E.   RESEARCH AND DEVELOPMENT COSTS:

     Research and development costs net of grants include the direct expenses
associated with employees identified by management as research and development
employees. Under FAS 86, software development costs are charged to income as
incurred, until technological feasibility is established. This is determined
when detailed design is completed and verified, or, in case detailed design is
not applicable, a working model has been completed and tested.

F.   ROYALTY-BEARING GRANTS:

     Royalty-bearing grants from the Government of Israel for funding certain
approved research projects and for funding marketing activity are recognized at
the time the Company is entitled to such grants on the basis of the related
costs incurred.

G.   INCOME TAXES:

     The Company accounts for income taxes in accordance with SFAS 109,
"Accounting for Income Taxes". This statement prescribes the use of the
liability method, whereby deferred tax asset and liability account balances are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The Company
provides a valuation allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.


                                      F-10
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONT.):

H.   EARNINGS (LOSS) PER SHARE:

     Earnings (loss) per share are computed based on the weighted average number
of Ordinary Shares outstanding during each year, in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 128, "Earning Per Share".

I.   CONCENTRATIONS OF CREDIT RISK:

     Financial instruments which potentially subject the company to
concentration of credit risk consist principally of cash and cash equivalents,
and accounts receivable. The Company's cash and cash equivalents are invested
primarily in deposits with major banks worldwide. Management believes that the
financial institutions that hold the Company's investments are financially
sound, and accordingly, minimal credit risk exists with respect to these
investments. The Company's trade receivables are derived from sales to customers
located primarily in the U.S., Europe, Brazil and Israel.

J.   FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The carrying amounts of cash and cash equivalents, trade receivables, other
accounts receivable, credit from banks and others and liabilities to suppliers
are equivalent or approximate to their fair value.

K.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:

     In June 1998, the Financial Accounting Standards Board issued Statement
133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"), as amended by statement 137. This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement and
requires that a company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. Statement 133 is
effective for fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. The Company does not expect the impact of this new statement on
the Company's balance sheets or results of operations to be material.


                                      F-11
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONT.):

L.   UNAUDITED INFORMATION:

     The financial statements include the unaudited statements of operations and
cash flows for the six months ended June 30, 1998. In management's opinion, this
unaudited information has been prepared on the same basis as the audited
financial statements and reflects all adjustments (consisting of normal and
recurring accruals) necessary for a fair presentation of the financial
information, in accordance with generally accepted accounting principles, for
the period presented.

M.   DATA REGARDING THE EXCHANGE RATE AND THE ISRAELI CONSUMER PRICE INDEX
     ("CPI"):

<TABLE>
<CAPTION>

                                                                  JUNE 30                       DECEMBER 31
                                                     -------------------------------- --------------------------------
                                                          1999             1998            1998             1997
                                                     ---------------  --------------- ---------------  ---------------
      <S>                                            <C>              <C>             <C>              <C>
      Index (in points)                                 104.8             99.0           105.2             96.8
      U.S. dollar (NIS per U.S. dollar)                  4.07             3.67            4.16             3.54

</TABLE>

<TABLE>
<CAPTION>

                                                                           PERCENTAGE OF CHANGE
                                                     -----------------------------------------------------------------
                                                        SIX MONTHS ENDED JUNE 30,         YEAR ENDED DECEMBER 31,
                                                     -------------------------------- --------------------------------
                                                          1999             1998            1998             1997
                                                     -------------------------------- ---------------  ---------------

      <S>                                            <C>                  <C>         <C>              <C>
      Index                                            (0.38)             2.27            8.62             6.99
      U.S. dollar (NIS per U.S. dollar)                (2.02)             3.67           17.65             8.77

</TABLE>

NOTE 2 - SHORT TERM INVESTMENTS :

     Deposit with bank bears interest at a rate of 5.56% as at June 30, 1999.
The deposit is pledged in order to secure lease guarantees for a period of 5
years (see note 4).


                                      F-12
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------

NOTE  3 - FIXED ASSETS:

COMPOSITION OF ASSETS, GROUPED BY MAJOR CLASSIFICATIONS, IS AS FOLLOWS:

<TABLE>
<CAPTION>

                                                                    COST                    ACCUMULATED DEPRECIATION
                                                       --------------------------------  -------------------------------
                                                       JUNE 30, 1999    DECEMBER 31,       JUNE 30,      DECEMBER 31,
                                                                            1998             1999            1998
                                                       --------------  ----------------  -------------  ----------------

    <S>                                                <C>             <C>               <C>            <C>
    Computer equipment                                    $173,118        $144,319           $66,451        $42,281
    Office furniture
      and equipment                                         55,567          51,436             6,693          3,530
    Machinery                                               16,917          16,917             2,998          2,025
    Vehicles *                                              51,021          51,021            10,735          6,909
                                                           -------          ------            ------          -----
         TOTAL                                            $296,623        $263,693           $86,877        $54,745
                                                           =======          ======            ======          =====

</TABLE>

     * The Company leases one vehicle that is recorded as a capital lease and
presented as a Company assets at the regular purchase price (not including the
financial component). The vehicle is pledged to secure the company's liability
under the lease (see note 4).

NOTE 4 - LONG-TERM LIABILITIES:

A.       CLASSIFIED BY CURRENCY OF REPAYMENT, LINKAGE TERMS AND INTEREST RATES:

<TABLE>
<CAPTION>

                                                                                        JUNE 30,        DECEMBER 31,
                                                                   INTEREST RATES         1999              1998
                                                                 ------------------- ---------------- -----------------

      <S>                                                        <C>                 <C>              <C>
      IN ISRAELI CURRENCY:
         Linked to the dollar                                         5 - 9.6           $516,874          $18,821
         Linked to the CPI*                                             6.35              17,126           19,319
                                                                                          ------            -----
                                                                                         534,000           38,140
         Less - current maturities                                                       109,084            8,852
                                                                                          ------            -----
                                                                                        $424,916          $29,288
                                                                                          ======            =====

</TABLE>

      * A loan received to finance a capital lease on a vehicle, as described in
note 3.


                                      F-13
<PAGE>

MULTIMEDIA KID - INTELLIGENCE IN EDUCATION LTD.
- -----------------------------------------------

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------

NOTE 4 - LONG-TERM LIABILITIES (CONT.):

B.   THE LONG-TERM PORTION OF THE LIABILITIES MATURE IN THE FOLLOWING YEARS
     AFTER THE BALANCE SHEET DATES:

<TABLE>
<CAPTION>
                                                                             JUNE 30,         DECEMBER 31,
                                                                               1999              1998
                                                                         ---------------  ----------------
      <S>                                                                <C>              <C>
      Second year                                                           $109,158         $  9,178
      Third year                                                             109,787            9,529
      Fourth year                                                            104,673            7,336
      Fifth year                                                             101,298            3,245
                                                                              ------            -----
                                                                            $424,916          $29,288
                                                                              ======            =====
</TABLE>

NOTE 5 - ACCRUED SEVERANCE PAY:

A.   Israeli law generally requires payment of severance pay upon dismissal of
     an employee or upon termination of employment in certain other
     circumstances. The Company's severance pay liability to its employees,
     based upon the number of years of service and the latest monthly salary, is
     partly covered by insurance policies for senior employees, and the balance
     - by the balance sheet accrual.

B.   The severance pay expense was $21,000 and $63,000 for the six months ended
     June 30, 1999 and 1998, respectively, and $70,848 and $17,100 for the years
     ended December 31, 1998 and 1997, respectively.

NOTE 6 - COMMITMENTS:

A.   RENTAL AGREEMENTS:

     The Company leases office and warehouse space under two operating leases
that expire in December 1999, with options to renew annually for the next
three years. Minimum future rental commitments under these leases approximate
$48,000 a year. Rent expense aggregated approximately $48,000 for the years
ended December 31, 1999 and 1998 and approximately $24,000 for the six months
ended June 30, 1999 and 1998.

B.   AGREEMENTS RELATING TO COMPANY PRODUCTS:

     1. Pursuant to an agreement dated February 8, 1996 the Company is
obligated to pay royalties to a third party of up to 10% of its sales of the
software component of the product to the third party.

                                      F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------
NOTE 6 - COMMITMENTS (CONT.):

B.    AGREEMENTS RELATING TO COMPANY PRODUCTS (CONT.):

      2. Agreements relating to the Action KID system:

            a.   Pursuant to an agreement dated January 5, 1997 the buyer is
                 entitled to royalties in respect of sales of other Action KID
                 systems in Brazil at rates decreasing from 9% to 6%. In
                 addition, the buyer is entitled to royalties of 4% in respect
                 of systems sold in other countries.

            b.   According to an agreement signed on May 28, 1998 the purchaser
                 would act as the Company's sole agent for the sale of Action
                 KID system for one year starting with the signing of the
                 agreement, in consideration of 7% of sales turnover.

C.    ACTION KID INSTALLATION:

      In November 1997, the Company entered into a joint venture agreement to
      establish a learning center in Israel based on the Action Kid system. The
      joint venture set up an Action KID Center in Petach Tikvah.

      In 1998, the Company and co-venturer reached an oral agreement (which has
      not yet been put into writing) to dissolve the joint venture. This
      agreement stipulates that the Petach Tikvah Action Kid Center would remain
      in the Company's possession. The amount paid by the other party to the
      joint venture for its share in the joint venture, approximately $20,000,
      would be treated as a down payment for future acquisitions by the
      co-venturer from the Company and is accordingly included in "accounts
      payable-other".

D.    ROYALTY-BEARING GRANTS:

      The company is committed to pay royalties to the Office of the Chief
      Scientist in the Ministry of Commerce and Industry at the rates of 3%-5%
      on proceeds from the sale of products which were developed with the aid of
      the Office of the Chief Scientist. The amount of the grant received is
      linked to the dollar and bears interest at LIBOR. Royalties paid will be
      limited to the grant received.


                                      F-15
<PAGE>

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------
NOTE 7 - TAXES ON INCOME:

A.    MEASUREMENT OF RESULTS FOR TAX PURPOSES UNDER THE INCOME TAX (INFLATIONARY
      ADJUSTMENTS) LAW, 1985 (THE "INFLATIONARY ADJUSTMENTS LAW")

 .    Under this law, results for tax purposes are measured in real terms, in
      accordance with the changes in the Israeli CPI. The Company is taxed under
      this law. These financial statements are presented in US dollars. The
      difference between the changes in the Israeli CPI and the exchange rate of
      the US dollar, both on an annual and a cumulative basis, causes a
      difference between taxable income and income reflected in these financial
      statements.

B.    TAX RATES:
      Income is taxed at the regular rate of 36%.

C.    TAX ASSESSMENTS:
      The Company has not been assessed any taxes on income since incorporation.

D.    NET OPERATING LOSS CARRYFORWARDS:
      The Company has accumulated losses for tax purpose as of June 30, 1999, of
      approximately $ 727,000 which may be carried forward and offset against
      future taxable income for an indefinite period.

E.    DEFERRED TAX ASSETS CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                                                         JUNE 30,       DECEMBER 31,
                                                                                      --------------- -----------------
                                                                                           1999             1998
                                                                                      --------------- -----------------
<S>                                                                                      <C>             <C>
      Deferred tax assets:
         Loss carryforwards                                                              $261,405        $227,200
         Allowances and reserves                                                           68,400          70,792
                                                                                          -------         -------
                                                                                          329,805         297,992
      Less valuation allowance                                                           (329,805)       (297,992)
                                                                                          -------          ------
      Net deferred tax                                                                  $   -           $   -
                                                                                          =======         =======

      The Company provided a 100% valuation allowance against the deferred tax
      assets in respect of its tax losses carryforward and other temporary
      differences due to uncertainty concerning its ability to realize these
      deferred tax assets in the future.
</TABLE>



                                      F-16
<PAGE>


NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------
NOTE 7 - TAXES ON INCOME (CONT.):

F.    RECONCILIATION OF THE THEORETICAL TAX EXPENSE TO THE ACTUAL TAX EXPENSE
      (BENEFIT):

      A reconciliation between theoretical tax expense, assuming all income is
      taxed at the statutory rate applicable to the income of companies in
      Israel of 36%, and the actual tax expense, is as follows:

<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED                    YEAR ENDED
                                                                  JUNE 30,                       DECEMBER 31,
                                                       -------------------------------- --------------------------------
                                                            1999             1998             1998            1997
                                                       ---------------  --------------- --------------------------------

<S>                                                    <C>              <C>             <C>               <C>
      Loss before taxes on income, as reported in
      the statements of operations                     $   (111,085)    $   (242,733)   $   (428,051)     $ (50,148)
                                                       ============     ============    ============      ==========

         Statutory tax rate in Israel                            36%              36%             36%            36%
                                                       ============     ============    ============      ==========

         Theoretical tax expense (benefit)                  (39,991)         (87,384)       (154,098)       (18,053)
      Decrease in taxes resulting from:
         Carryforward losses and other deferred
            taxes for which valuation allowance
            was provided                                     35,575           83,457         147,801          7,355
      Non-deductible expenses                                 4,416            3,927           6,297         10,698
                                                       ------------     ------------    ------------      ----------
            Taxes on income in the statements of
                operations                             $          -     $          -    $          -      $       -
                                                       ============     ============    ============      ==========
</TABLE>

NOTE 8 - LIABILITIES SECURED BY PLEDGES:
The balances of liabilities of the Company which are secured by pledges, are as
follows:
<TABLE>
<CAPTION>
                                                                                         JUNE 30,        DECEMBER 31,
                                                                                           1999              1998
                                                                                      ----------------  ----------------
<S>                                                                                      <C>                <C>
Short-term bank credit                                                                   $  558,686         $430,011
Long-term liability from banks                                                              516,874           18,821
Long-term liability under capital lease                                                      17,126           19,319
                                                                                         ----------         --------
                                                                                         $1,092,686         $468,151
                                                                                         ==========         ========
</TABLE>

Short-term bank credit is secured by the Company's assets and rights and other
assets, share capital, cash notes and other securities held by a bank and by
fixed charges on a distribution agreement and the money receivable thereunder.
The dollar-linked long-term liability (see note 4) is secured by floating
charges on the Company's assets. As to the charge on the leased vehicle, see
note 2.


                                      F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------
NOTE 9 - SUPPLEMENTARY BALANCE SHEET INFORMATION:

<TABLE>
<CAPTION>
                                                                                         JUNE 30,       DECEMBER 31,
                                                                                           1999             1998
                                                                                      --------------- -----------------
         <S>                                                                               <C>            <C>
A.       ACCOUNTS RECEIVABLE:
         1)     Trade:
            a)  Composed as follows:
                Open accounts                                                              $507,463       $191,926
                Checks receivable                                                           411,350        103,389
                                                                                           --------       --------
                                                                                           $918,813       $295,315
                                                                                           ========        =======

            b)  The item includes:
                Current maturities of long-term receivable                                  $52,892        $56,370
                                                                                           ========        =======

      2) Other:
            Advances to suppliers                                                          $103,269       $ 47,398
            Israeli Government Departments and agencies                                      39,634         16,529
            Prepaid expenses                                                                  -              1,750
            Sundry                                                                            4,273          3,048
                                                                                           --------       --------
                                                                                           $147,176       $ 68,725
                                                                                           ========       ========

B.    INVENTORIES:
      Raw materials and supplies (1)                                                       $180,000      $ 202,470
      Inventory in process                                                                  240,000        202,469
      Finished products                                                                     130,000        130,000
                                                                                           --------       --------
                                                                                           $550,000      $ 534,939
                                                                                           ========       ========
</TABLE>

(1) Includes new versions of electronical components amounting to $ 60,000 and
$90,000 as of June 30,1999 and December 31, 1998, respectively.

C.     LONG-TERM RECEIVABLE:

      1)    On December 3, 1998, the Company signed an agreement for the sale of
            an Action KID system for $380,000, of which $30,000 was received
            through December 31, 1998. The balance due as of December 31, 1998,
            does not bear Interest and is presented under "long-term receivable"
            at the present value of payments due through March 31, 2002, as
            follows:
<TABLE>
<CAPTION>

                                                                                                      U.S. $
                                                                                                ---------------
           <S>                                                                                       <C>
           Nominal balance due                                                                       $350,000
           Less - unamortized discount based on imputed interest rate 8.75%                           (62,072)
                                                                                                      -------
                                                                                                     $287,928
                                                                                                      =======
</TABLE>


                                      F-18
<PAGE>

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- -----------------------------------------------
NOTE 9 - SUPPLEMENTARY BALANCE SHEET INFORMATION (CONT.):

C.       LONG-TERM RECEIVABLE (CONT.):

      2) This balance is collectible in the following years:

<TABLE>
<CAPTION>
                                                                                         JUNE 30,       DECEMBER 31,
                                                                                           1999             1998
                                                                                      --------------- -----------------
                                                                                          U.S. $           U.S. $
                                                                                      --------------- -----------------

           <S>                                                                            <C>             <C>
           First year                                                                     $  52,892       $  56,370
           Second year                                                                       59,299          51,824
           Third year                                                                        89,867         111,190
           Fourth year                                                                       34,272          68,544
                                                                                            -------         -------
                                                                                            183,438         231,558
                                                                                            -------         -------

                                                                                           $236,330        $287,928
                                                                                           ========        ========
</TABLE>

D.     SHORT-TERM CREDIT FROM BANKS AND CURRENT MATURITIES OF LONG-TERM
       LIABILITIES:

<TABLE>
<CAPTION>
                                                                                         JUNE 30,       DECEMBER 31,
                                                                                           1999             1998
                                                                                      --------------- -----------------
           <S>                                                                            <C>              <C>
           Short-term credit:
              From banks*                                                                 $ 689,611        $430,011
              Current maturities of long-term liabilities                                   109,084           8,852
                                                                                            -------          ------
                                                                                          $ 798,695        $438,863
                                                                                          =========        ========
</TABLE>

         * In NIS - unlinked, bearing an average annual interest rate of 16-18%.

E.      ACCOUNTS PAYABLE AND ACCRUALS - OTHER:

<TABLE>
<CAPTION>
                                                                                          JUNE 30,       DECEMBER 31,
                                                                                            1999             1998
                                                                                       --------------- -----------------

           <S>                                                                             <C>            <C>
           Payroll and related expenses                                                    $ 109,100      $ 117,638
           Accruals                                                                           26,516         25,980
           Customer advances and other                                                       173,702         37,254
                                                                                             -------         ------
                                                                                           $ 309,318      $ 180,872
                                                                                           =========       ========
</TABLE>


                                      F-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- ----------------------------------------------
NOTE 10 - SELECTED STATEMENT OF OPERATIONS DATA:

A.       REVENUES FROM SALES OF PRODUCTS:

<TABLE>
<CAPTION>
                                                            FOR THE SIX MONTHS ENDED             FOR THE YEAR ENDED
                                                                    JUNE 30,                        DECEMBER 31,
                                                        --------------------------------- ---------------------------------
                                                             1999             1998             1998             1997
                                                        ---------------- ---------------- ---------------- ----------------
                                                                            UNAUDITED

            <S>                                               <C>              <C>              <C>              <C>
            Revenues from principle customers -
            revenues from single customers each of
            which exceed 10% revenues in the relevant
            year:

            Customer A                                        $148,000         $451,000         $746,936         $278,306
                                                              ========         ========         ========         ========

            Customer B                                                                                          $  65,406
                                                                                                                =========

            Customer C                                        $251,286                                          $  92,500
                                                              ========                                          =========

            Customer D                                                         $260,000         $260,000         $133,717
                                                                               ========         ========         ========

            Customer E                                                                          $315,722
                                                                                                ========

            Customer F                                        $331,240
                                                              ========

</TABLE>

B.       COST OF REVENUES:

<TABLE>
<CAPTION>
                                                             FOR THE SIX MONTHS ENDED             FOR THE YEAR ENDED
                                                                     JUNE 30,                        DECEMBER 31,
                                                          --------------------------------  --------------------------------
                                                               1999             1998             1998             1997
                                                          ---------------  ---------------  ---------------  ---------------
                                                                             UNAUDITED
      <S>                                                    <C>              <C>              <C>              <C>
      Purchases of raw materials and other supplies          $131,726         $117,122         $456,978         $322,242
      Salaries                                                 37,348           48,152           94,830           82,694
      Depreciation                                             28,306           11,746           33,347           11,460
      Other                                                     9,983           14,675           64,639           52,365
      Changes in inventory of finished products                     -          130,000          (70,000)         (60,000)
                                                              -------          -------          -------          -------
                                                              207,363          321,695          579,794          408,761
      Action KID installation, see note 6C                          -                -          130,000         (130,000)
                                                              -------          -------          -------          -------
                                                             $207,363         $321,695         $709,794         $278,761
                                                             ========         ========         ========         ========
</TABLE>





                                      F-20

<PAGE>



NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- ----------------------------------------------
NOTE 10 - SELECTED STATEMENT OF OPERATIONS DATA (CONT.):

C.       SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

<TABLE>
<CAPTION>
                                                            FOR THE SIX MONTHS ENDED            FOR THE YEAR ENDED
                                                                    JUNE 30,                        DECEMBER 31,
                                                        --------------------------------- ---------------------------------
                                                             1999             1998             1998             1997
                                                        ---------------- ---------------- ---------------- ----------------
                                                                            UNAUDITED
      <S>                                                    <C>              <C>             <C>              <C>
      Selling                                                $174,299         $190,468        $356,750         $181,661
      General and administrative                               96,188           94,056         144,560           56,081
                                                              -------          -------          ------           ------
                                                             $270,487         $284,524        $501,310         $237,742
                                                             ========         ========        ========         ========
</TABLE>

D.       FINANCIAL EXPENSES - NET:

<TABLE>
<CAPTION>
                                                           FOR THE SIX MONTHS ENDED             FOR THE YEAR ENDED
                                                                    JUNE 30,                        DECEMBER 31,
                                                        --------------------------------- ---------------------------------
                                                             1999             1998             1998             1997
                                                        ---------------- ---------------- ---------------- ----------------
                                                                            UNAUDITED
<S>                                                      <C>              <C>               <C>            <C>
      Income:
         Interest of bank deposits                       $        -       $    1,022        $   1,022      $        22
         Exchange differences - net                           7,353            4,018           13,817           27,332
                                                             ------           ------           ------           ------
                                                              7,353            5,040           14,839           27,354
                                                             ------           ------           ------           ------

      Expenses:
         Interest                                           (63,784)         (12,411)         (30,250)         (48,203)
         Other                                             (  5,080)        (  1,067)          (3,007)          (3,341)
                                                             ------           ------           ------           ------
                                                            (68,864)         (13,478)         (33,257)         (51,544)
                                                             ------           ------           ------           ------

                                                          $ (61,511)        $( 8,438)        $(18,418)        $(24,190)
                                                          =========         ========         ========         ========
</TABLE>



                                      F-21
<PAGE>

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- ----------------------------------------------
NOTE 11 - SUMMARY INFORMATION OF OPERATIONS DATA:

The company's business is divided into four main geographic areas : Israel,
Brazil, U.S.A., Romania and other regions. Total revenues are attributed to
geographic areas based on location of strategic alliances. This data is
presented in accordance with SFAS 131 "Disclosures about segments of an
enterprise and related information", which the Company has adopted for all
periods presented. The following table presents total revenues for the six
months ended June 30, 1999 and 1998 and for the year ended December 31, 1998 and
1997.

<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED                 YEAR ENDED
                                                                   JUNE 30,                    DECEMBER 31,
                                                         ------------------------------ ----------------------------
                                                             1999            1998           1998           1997
                                                         -------------   -------------- -------------  -------------
                                                                            UNAUDITED
<S>                                                          <C>            <C>          <C>              <C>
Israel                                                       $148,000       $451,000     $1,062,658       $278,306
Brazil                                                                       260,000        260,000        133,717
U.S.A.                                                        251,286                                       92,500
Romania                                                       331,240
Other                                                          17,217         47,339        176,424        209,508
                                                               ------         ------        -------         ------
                                                             $747,743       $758,339     $1,499,082       $714,031
                                                             ========       ========     ==========       ========
</TABLE>


NOTE 12 - SHARE OPTION PLAN
The company granted an option to an executive officer to purchase 400 ordinary
shares of the Company. The option is subject to certain performance criteria,
vests at 24 months, and has an exercise price of $1,250 per share.


                                      F-22

<PAGE>

NOTES TO FINANCIAL STATEMENTS (IN U.S. DOLLARS)
- ----------------------------------------------
NOTE 13 - SUBSEQUENT EVENTS:

a.   On December 16, 1999, the Company and its shareholders entered into a Stock
     Exchange Agreement and Plan of Reorganization (the "Agreement") with Jenkon
     International, Inc., a United States, Delaware Corporation ("Jenkon")
     whereby all the outstanding capital stock of the Company was exchanged for
     840,000 shares of Jenkon Common Stock and 2,416,000 shares of Jenkon
     redeemable preferred stock which will be convertible into an aggregate of
     24,160,000 common shares of Jenkon. For accounting purposes, the
     transaction was treated as a reverse acquisition whereby the Company
     acquired Jenkon. Assuming all shares of Jenkon Series B and Series C
     Preferred Stock are converted into Common Stock, the former stockholders of
     Multimedia KID will hold approximately 73% of Jenkon's fully-diluted common
     stock after taking into account the convertible promissory notes described
     in b.

b.   On December 16, 1999 Jenkon completed a private placement of an aggregate
     of $4,500,000 of Convertible Promissory Notes, of which $2,062,000 was
     remitted to Multimedia KID. The Notes are unsecured and bear interest at an
     annual rate of 12% from and after January 1, 2000 and are due and payable
     in full on or before April 1, 2000. The principal balance of the Notes are
     automatically converted into Jenkon's Common Stock at a conversion rate of
     $1.00 per share after Jenkon's stockholders have approve the issuance of
     such shares.


                                      F-23

<PAGE>

                                                                  EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

              Made and entered in Tel-Aviv, on       of    1998
                                              ------   ----

Between:

Multimedia K.I.D - Intelligence in Education Ltd.
Of 23 Haluzat Hapardesanut Street
Petah Tikva

("THE COMPANY")                                      ON THE ONE PART

and

Mr. Pessie Goldenberg
of 12 Pika Street, Petah Tikva

("THE EMPLOYEE" )                                    ON THE OTHER PART



WHEREAS:     The employee is a shareholder and a director of the company, and,

WHEREAS:     The company wishes to employ the employee as its managing
             director, and the Employee wishes to be employed in that capacity,
             and

WHEREAS:     The parties wish to set forth the terms and conditions of the
             Employee's employment by the company,

Now therefore, the parties hereby agree and stipulate following:

     PREAMBLE

     1.   The preamble to this agreement constitutes an integral part thereof.

          The Articles headings are for convenience reasons only, and are not to
          be used for the purpose of the interpretation of this agreement.

     JOB DEFINITION

     2.   The company hereby appoints the Employee as the managing director of
          the company.

<PAGE>


     3.   It is hereby agreed that the Employee's obligations towards the
          company shall be, inter alia, as following:

          3.1  To carry out his duties in accordance with the general guidelines
               he shall receive from the company's Board of Directors ("THE
               BOARD") from time to time, and to devote all his time, efforts
               and attention to the performance of his duties.

          3.2  To serve the company in a loyal and integral manner and to his
               utmost in order to represent the company's best interests.

          3.3  Not to accept any other position as an employee of any third
               party, regardless of the compensation he may or may not receive
               from said third party, without the company's written consent.

     PERSONAL AGREEMENT

     4.   This agreement is a personal and specific agreement, that sets up the
          relations between the Employee and the company, and exclusively
          defines the terms of the Employee's employment by the company, subject
          to the provisions of the Israeli Law.

     WORK HOURS

     5.   The Employee hereby states and confirms that he is employed by the
          company at a managerial position, on a full time basis. The Employee
          further states and declares that his employment by the company
          involves a high degree of personal trust and faithfulness that makes
          it impossible for the company to oversee and control the Employee's
          working hours. Subsequently, it is therefore agreed by the parties,
          that the provisions of the Israeli Times of Work and Rest Law 1951,
          shall not apply to the employment of the Employee, and that the
          Employee shall not be entitled to any additional remuneration or
          compensation for the work performed while employed by the company,
          including work performed during rest days or overtime.

     COMPENSATION

     6.   As full compensation for all services rendered, and work and efforts
          invested by the Employee on the company's behalf, the company shall
          pay the Employee the following payments:

          6.1  A monthly gross salary of 45,000 New Israeli Shekels (NIS), which
               will be paid no later than the 9th day of every month ("THE
               SALARY"). The salary shall be indexed to the Israeli Consumer
               Price Index. The indexing of the salary shall be updated every
               three months. The basic Index shall be the index of December
               1997, as published on January 15th 1998.

<PAGE>



          6.2  The Employee shall be entitled to receive the above mentioned
               salary starting January 1998.

          6.3  The Employee shall be entitled to an annual leave of 26 days.

          6.4  The Employee shall be entitled to an annual convalesces pay of 10
               days.

          6.5  The company shall maintain the Managers Insurance policy number
               _______ ("THE POLICY") under the Employee's name, throughout the
               term of this agreement. The policy's terms shall remain unchanged
               throughout the term of this agreement, unless otherwise
               specifically agreed in writing by both the company and the
               Employee. The policy shall include an automatic ownership
               transfer clause, which will transfer the policy to the ownership
               of the Employee immediately upon termination of this agreement.

               For avoidance of any doubt, timely and full depositing into the
               policy, of the amounts required under the policy, shall be
               considered full execution, by the company, of its statutory and
               contractual obligations to pay the Employee Pension and Severance
               payments, and the company shall not be required to make any
               further payments, in connection with Pension and Severance
               payment for the Employee.

          6.6  The company undertakes to deposit into the policy, within 30 days
               from the date of this agreement, an amount equivalent to two
               monthly salaries, on account of its debts to the insurance
               company issuing the Employee's policy. The amount above
               constitutes payment of the debt caused by overdue Pension and
               Severance payments, and shall not be considered, for any intent
               or purpose, as a part of the Employee's salary.

          6.7  The company shall set up an advanced study fund under the
               Employee's name ("THE STUDY FUND"), to which fund the company
               shall deposit a monthly amount in NIS equivalent to 7.5% of the
               Employee's gross salary in the study fund. The Employee shall
               deposit a monthly amount in NIS equivalent to 2.5% of the
               Employee's gross salary in the study fund, and hereby gives the
               company his irrevocable instructions to deduct 2.5% from his
               gross monthly salary and to deposit this amount in the study
               fund.

          6.8  The company shall bear all costs and expenditures of the upkeep
               and maintenance of the car owned by the Employee, including, but
               not limited to, insurance, petrol, repairs, etc. The company
               shall not be required to pay and traffic tickets and/or fines
               levied on the Employee. All costs and expenditures pertaining to
               the upkeep and maintenance of the car shall be grossed up in the
               Employee's salary.

<PAGE>


          6.9  The Employee shall have, for the term of this agreement, the use
               of a company's Mobile Phone. All costs pertaining to the Mobile
               Phone shall be paid by the company. The above notwithstanding,
               the Employee shall make a record and notify the company of any
               personal overseas calls made by him over the Mobile Phone, and
               shall reimburse the company for charges paid by the company for
               these calls.

          6.10 All other social benefits shall be as per the provisions of the
               relevant labour laws in force at the time of this agreement.

          6.11 The Employee shall bear, and the company shall deduct from the
               Employee's monthly salary, Income Tax, Social Security Payments,
               Health Insurance payments, Organization payments, and any and all
               other obligatory payments imposed by law on Employees in Israel,
               which the Employee shall be obligated under law to pay.

          6.12 The Employee shall be entitled to a bonus, at the end of each
               calendar year, as will be decided by the company's board of
               directors.

          6.13 It is mutually agreed that any and all patents, invention and/or
               copyright work, developed by the Employee during his employment
               by the company, shall be the exclusive property of the company,
               and the Employee hereby waives any and all right and/or claim of
               any kind or sort, arising out of the above.

     TERM AND TERMINATION

     7.   This agreement is for an unlimited period. Each side to this agreement
          may terminate this agreement by a prior written notice.

     8.   The company and the Employee both undertake to give the other party to
          this agreement a prior notice of at least 180 days, prior to the
          termination of this agreement.

     9.   The above notwithstanding, should the following events occur, the
          company shall be entitled to terminate this agreement without prior
          notice:

          9.1  The Employee has breaches his non-competition obligations under
               this agreement,

          9.2  The Employee had breached this agreement by a material breach,
               and did not repair the breach within 30 days from the company's
               written notice demanding the repair of said breach.

          9.3  The Employee has been convicted of a crime, according to the
               Israeli Penal code of 1977, and the conviction carries with it
               disgrace

<PAGE>


          9.4  The Employee shall report directly to the company's Board of
               Directors, follow the Board's instructions, and supply the Board
               with all information required by the Board

     10.  Upon termination of this agreement, and throughout the prior-notice
          period, the Employee shall leave his position in an orderly manner, in
          coordination with the Board, and shall supply his successor with all
          the assistance and information required by the successor.

     CONFIDENTIALITY AND NON-COMPETITION

     11.  Throughout the term of this agreement, and for a period of 18 months
          after termination, the employee undertakes not to have any interest,
          as an employee, consultant, officer or director in, or otherwise aid
          or assist in any manner, any firm, corporation, partnership,
          proprietorship, or other business that engages, whether in Israel or
          abroad, in any activity and/or business, competing with that of the
          company.

     12.  The Employee undertakes to keep secret and retain in strictest
          confidence, and not to use for his or any person's or entity's
          benefit, other than the company, all confidential matters and trade
          secrets known to him relating to the business and the operation of the
          company, including, without limitation, information regarding
          software, systems, customer lists, pricing policies, products
          development and manufacture technique and/or methods and/or processes,
          operational methods, know-how, inventions and research projects and
          other business affairs related to the business and/or operation of the
          company.

     13.  Within the period of one (1) year after termination of the Employee's
          employment by the company, the Employee undertakes not to employ
          and/or not to solicit the employment of any person who was employed in
          a key position by the company, during the period of one year prior to
          the termination of the Employee's employment by the company.

     LIABILITY INSURANCE

     14.  The Company undertakes to maintain with a well established Insurance
          company, throughout the term of this agreement, and for a period of
          two years thereafter, a valid insurance policy as defined in Article
          96 (41) of the Israeli Companies Order of 1983, insuring the Employee
          against claims related to and/or regarding the Employee's position in
          the company and/or actions while in the company's employment, or on
          the company's behalf.

     15.  The Employee shall be a beneficiary of said Insurance, and shall be
          insured for no less than US $1,500,000 per claim and US $3,000,000
          per term.

<PAGE>


     16.  The Insurance shall cover all claims, arising and/or pertaining to
          breach of fiduciary duties and/or a bona-fide or negligent breach of
          trust towards the company and/or any third party, and any and all
          financial liability imposed on the Employee due to the above. The
          Insurance shall not cover intentional or malicious breach of trust
          towards the company.

     17.  The company hereby undertakes to reimburse the Employee for all
          financial liabilities imposed on him or incurred by him due to any
          claim against him, arising and/or relating to an action taken on his
          part in his capacity as the company's employee, including any
          reasonable legal fees and costs, incurred in the course of conducting
          the Employee's defense against said claims, including legal costs
          imposed on the Employee by a competent Court or Arbitrator, inasmuch
          as said reimbursement is permitted under the Israeli Companies Order
          of 1983.

          The employee shall not be entitled to recover any additional payment
          from the company, other than the reimbursement stated above, for any
          financial liabilities imposed on him or incurred by him due to any
          claim against him, arising and/or relating to an action taken on his
          part in his capacity as the company's Employee, as stated above.

     18.  The company hereby undertakes to alter it's Articles of Association in
          accordance with Article 96 of the Israeli Companies Order of 1983, in
          order to be able to reimburse the Employee, as stated in Article 16
          above, for all financial liabilities imposed on him or incurred by
          him, due to any claim against him, arising and/or relating to any
          action taken on his part in his capacity as the company's employee.

     JURISDICTION

     19.  This agreement shall be governed exclusively by Israeli Law. The
          competent Courts in Tel-Aviv shall have sole jurisdiction over any
          dispute arising under this agreement, including, but not limited to,
          dispute related to this agreement, its validity, interpretation,
          breach and termination.

     IN WITNESS HEREOF, THE PARTIES HAVE EXECUTED THIS EMPLOYMENT AGREEMENT


MULTIMEDIA K.I.D.
Intelligence in
Education Ltd.

/s/ Pessie Goldenberg                                 /s/ Pessie Goldenberg

- -------------------                                  ---------------------
The company                                          The Employee

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5

<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          JUN-30-2000
<PERIOD-END>                               JUN-30-1999
<CASH>                                          20,477
<SECURITIES>                                   200,000
<RECEIVABLES>                                1,065,989
<ALLOWANCES>                                         0
<INVENTORY>                                    550,000
<CURRENT-ASSETS>                             1,836,466
<PP&E>                                         296,623
<DEPRECIATION>                                  86,877
<TOTAL-ASSETS>                               2,229,650
<CURRENT-LIABILITIES>                        1,851,054
<BONDS>                                              0
                                0
                                          0
<COMMON>                                         1,082
<OTHER-SE>                                   (197,402)
<TOTAL-LIABILITY-AND-EQUITY>                 2,229,650
<SALES>                                        747,743
<TOTAL-REVENUES>                               747,743
<CGS>                                          207,363
<TOTAL-COSTS>                                  207,363
<OTHER-EXPENSES>                               589,954
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              61,511
<INCOME-PRETAX>                                444,193
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                          (111,085)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 (111,085)
<EPS-BASIC>                                    (33.33)
<EPS-DILUTED>                                  (33.33)


</TABLE>



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